Janet Wood talks to Doug Stewart about false starts on time of use tariffs, real-world trials on vehicle to grid, the fallout from Covid and why Ofgem’s plan to give customers back their credit balances is not about managing seasonality
In 2017, when I interviewed Doug Stewart, chief executive of supplier Green Energy UK (GEUK), it was because the company was about to start offering a time of use (ToU) tariff. Now he says that was “a bit of purest optimism”.
My question then was about the industry ‘back-end’ - how the company would manage ToU tariffs with customers settled not by the half hourly market periods used in the wholesale market but on an assumed profile of use that would not reflect reality (for a full explanation of this issue see here). But Stewart’s ToU problem was much simpler: lack of smart meters.
He says, “We genuinely thought that the DCC would be operational by March 2017, because that was what we were being told. Rather unfortunately, the DCC was not ready then, meters were not widely available, second generation meters were still waiting to be defined, first generation meters had operability problems. The whole smart metering piece was an issue for us.”
He says he thought it was “the future that we had all been looking for,” with the start of smart consumers managing their consumption and “also a bit of demand side management”. But with a lack of meters and, he admits, a poor choice of installer partner (now out of business), the GEUK’s reputation began to suffer. “We were constantly fighting off cancelled appointments, meters that didn’t work, all of which is an outsourced activity but it reflected on us”. He says compensation payments (automatic for issues such as missed appointments) were “significant”, but he didn’t want to use the contract with licensed meter operatives as an excuse. “The supplier hub principle says we are responsible and we accept that responsibility.” But the company closed the tariff to new users and did not reintroduce it until now.
He says there was no shortage of potential users of the tariff – too many for the meter installer – and since most of them were EV users, the burgeoning EV market will raise interest now.
if you cannot connect a smart meter to a mobile signal it isn’t very smart. There are lots and lots of meters where we just can’t get them to connect
He says the relaunch is much smoother. “The biggest issue now is the [comms] network – if you cannot connect a smart meter to a mobile signal it isn’t very smart. There are lots and lots of meters where we just can’t get them to connect.”
‘Vehicle to grid’ on trial
The relaunch means Green Energy UK has been able to become one of four supplier partners in a ‘vehicle to grid’ trial spearheaded by WPD. Stewart says, “We have been promised V2G for a long time, and certain energy companies have been suggesting that it is here already, but it very much isn’t.”
“We have been promised V2G for a long time, and certain energy companies have been suggesting that it is here already, but it very much isn’t.”
He says the supplier choice aspect for the domestic participants is one attraction of the project because “it is a lot more like a real world trial”. Another attraction was participant Electric Nation, which did “ a fantastic piece of research a few years ago with two million charging hours to find out what people’s habits are”.
Stewart talks about the V2G potential in comparison with people’s petrol habits, often filling up when they get to the quarter-full level. But he says, “Most electric drivers go home, leave with a full charge every day and drive around with 75% charge because they never drive more than 25% of the capability of the battery, then go home and plug it back in again”. Habits should change he says, but also “peoples’ ability to store energy in their battery – that’s wasted”. He says we need more data and smarter use. “Do I need to charge my car for 200 miles to go 15 miles to work each day? Maybe I could charge it less or I could run my house on it during the day or the weekend. But data and analytics and computer power and all of the Internet of Things – all those things help us make better use of energy and will continue to improve our ability to smooth out peaks and troughs, which has to be good news. But we have to have the data, we have to have the car talking to the network.”
In this trial, “we have one view of it and the other three partners will have another views and that is far more real-world than one energy supplier dealing with one trial.”
Who is entering the industry?
A lot of what we are discussing relates closely to digital innovation in the energy industry. I ask about the best way to bring in more innovation in this space. Stewart says “I think we will partner with a whole lot of specialists. Take the app approach to billing or managing demand: most people won’t have their own app developer.” He says “Our app has GEUK all over it and our tone of voice, but we partnered with someone else to do it.
“I think it will be about who your partners are and who you select. The market is going to be populated by a lot of different skills and a lot of diverse businesses.”
“The thing that differentiates us from, say, the telecoms industry is that the system has to balance.”
He adds, “I think the supplier hub will remain for a considerable period of time … because the thing that differentiates us from, say, the telecoms industry is that the system has to balance. If you overload the telephone system you can’t get a line but if you overload the electricity system the lights go out.”
That brings us to the experience of the last year when demand and supply was dramatically affected by a huge reduction in business demand. I note that suppliers’ ability to forecast demand – something that is needed for settlements within the industry, at least until they are trued up on real readings up to 18monts later - was among the issues that had to be managed.
Stewart says, “If I am honest about our own approach we hoped for the best, planned for the worst, and got something in between. We didn’t’ know how many of our business customers would close and go home and never open again– and we still don’t. That is still an unknown for the industry. We didn’t know the level at which [domestic] consumption would go up because of Covid requirements working from home.”
Since the company “we couldn’t really put a handle on how many of our business consumers were not going to consume anything, we got in touch with them all and asked whether they were open. If they weren’t we decided there was no point in sending a bill for electricity they were not going to consume.” Instead, they were billed for standing charges and a small amount of baseload.
“If we had a business-only electricity business it would have been very difficult because the revenues fell off a cliff, but they increased at a domestic level”
He adds, “If we had a business-only electricity business it would have been very difficult because the revenues fell off a cliff, but they increased at a domestic level and the chancellor stepped in with the furlough scheme, which allowed people to pay their bills.
“If people hadn’t been paid to stay at home there wouldn’t have been any aggregate demand and people wouldn’t have been able to meet the costs of household bills. When we first went in there was anecdotal evidence that 50% of the population were one month away from bankruptcy.”
But as it stands, “We have not seen a significant downturn in people not paying their bills.
“We were asked by BEIS and Ofgem to be flexible and we have been, but we see that as a credit issue not a loss issue. These people will pay their bills when they can afford to and we will allow them credit terms in order to pay them.
“But that is business as usual, because when people get into trouble with their bills we have to help them get out of that and we do that as a matter of course.”
Ofgem’s action on credit balances
We are speaking shortly after Ofgem announced plans to reduce suppliers’ credit balances. Stewart is keen to say that those proposals will not affect consumers who ‘smooth’ their payments over the year.
“This isn’t about seasonality,” he says, “The reason £1.4B of debt is sitting on the balance sheet of suppliers is because they operate a money up-front payment system.”
He is referring to suppliers who ask their customers to pay in advance, “and they run their risk capital and their working capital off consumer deposits”.
He thinks consumers would not accept paying a £100 deposit and £100 in upfront payments in other sectors, noting that his company (and the large legacy suppliers) bill in arrears. But he says since the measure is not being introduced until 2022, the other companies “have plenty of time to get their houses in order – they just have to find other lines of credit. I am quite sure they are capable of doing that.”